Bombardier faces sharp criticisms as it struggles with a small backlog, proven competition and bringing its all-new aircraft from testbed to first flight
After four years in development, the Bombardier CSeries CS100 remains within six months of a scheduled first flight. Structural assemblies for the five flight test vehicles are ongoing in Mirabel, Quebec. Electronics, hydraulics and software have been integrated in the Aircraft 0 test rig.
While Bombardier's top executives have acknowledged the risk of what they consider a minor delay of between three and six months, they are clearly encouraged by progress made thus far and the programme's path to technical and financial success.
Yet, at the same, Bombardier's executive team continues to face sharp questioning, not only from the CSeries project's critics.
Most of the questions about are about Bombardier's sales results to date.
DIMINUTIVE BACKLOG
The CSeries order backlog was stuck in double digits until last June, and now numbers 138 firm orders from eight customers. But the twinjet's backlog remains only a distant fraction of that of the slightly larger, re-engined narrowbodies from Airbus and Boeing.
The growing disparity has moved even the CSeries' single-largest buyer to publicly question Bombardier's sales tactics.
"We're concerned about the slow pace of sales. We would like to see more selling activity there," Bryan Bedford, chief executive of Republic Airways, the North American launch customer with 40 firm orders and 40 options, said at the US Regional Airline Association convention in May.
For Bedford, the CSeries's relatively small backlog is a puzzle. After all, Republic preserved its CSeries order even after agreeing to spin off Frontier Airlines. Frontier was never formally assigned the CSeries order by Republic, but the order announcement in February 2010 noted that each of its CSeries aircraft would be equipped with 25 Stretch seats, a bespoke Frontier item.
As Frontier exits Republic's control, Bedford is now considering more ambitious operating models for his CSeries fleet, such as flying on behalf of a future low-cost airline launched by a US network carrier.
"Frankly, we're surprised it's having difficulty in the marketplace," Bedford said. "It's a true game-changing performer even up against the [Airbus A320neo family]," said Bedford, adding that the CSeries "production process is going on schedule and on plan."
Speaking on the sidelines of the ISTAT 2012 conference in March, Air Lease Corporation chief executive Steven Udvar-Hazy bluntly warned Bombardier that the CSeries's diminutive backlog is a problem.
"They've got to build the customer base. Even if it means sacrificing pricing, because if they don't, they won't have a successful programme," Udvar-Hazy said.
In simple terms, Bombardier's potential customers are not willing to pay a premium price for the extra performance promised by the CSeries.
Bombardier is promising airlines and lessors the game-changing economics for small narrowbodies that Boeing claimed the 787 would bring to widebodies, including a 15% cash operating cost advantage and a 20% fuel-burn reduction compared with current aircraft in its class.
COMPETITIVE MARKET
For providing an aircraft meeting these specifications, Bombardier makes no apologies for asking airlines to pay a certain price.
"I don't want to get into the world of discussion on pricing strategy. It's clear that's not something we want to share. But what I can say is that we believe very strongly in the value that is going to be delivered with this airplane and we want to get paid for that value," says Philippe Poutissou, vice-president of marketing for Bombardier Commercial Aircraft.
"We recognise we're in a competitive market and we want to be competitive," Poutissou adds. "But at the same time, this is an airplane that's going to, when you look at the fuel savings alone, be worth $1 million a year compared with what's flying today - that's real value being delivered to the airlines."
Bombardier's eight customers so far are likely benefit from launch deals, which includes favourable pricing for the airline and performance guarantees with financial penalties imposed if the aircraft fails to meet them.
Bombardier has struggled to close some of these deals. Three more airlines - Turkey's Atlasjet, Mongolia's Eznis Airways and Russia's Ilyushin Finance - have signed combined letters of intent for 52 more aircraft, including 25 options. But Bombardier has been slow to convert the deals into firm orders.
The LOI aircraft might already be included in Bombardier's production plans, however. In addition to delivering at least one aircraft in 2013, Bombardier has revealed plans to deliver 40 in 2014, 80 in 2015 and 120 in 2016. The first two years of production are sold out, with 60% of the production slots also claimed in 2016. That adds up to nearly 200 aircraft in Bombardier's production plan, or 62 more than the airframer's firm order backlog.
Bombardier has also signed options for a total of 124 aircraft from its eight firm customers, and Korean Air has signed an LOI for another 10 CSeries.
In contrast, Airbus has amassed nearly 1,500 firm orders in about 18 months for the A320neo family. Boeing, meanwhile, has accumulated 430 orders from three customers less than a year after launching the 737 Max.
The existence of the Airbus and Boeing products offers airlines the comfort of an almost "proven" solution. The 737 Max and A320neo have new engines and other updates, but are largely based on their well-established predecessors.
"In our discussions even now, we know that psychologically, [the airlines] are comparing the proven solutions versus the new solutions," Poutissou says. "The new solution has inherent value in it, but it also has some existing risk. And if you can peel away that risk then the equation tips in your favour."
But Bombardier's competition also has another advantage. Both the A320neo and 737 Max will be manufactured on existing production lines with the capacity to produce more than 500 aircraft per year.
AWAITING TESTS
"We can't produce that many in the near term," Poutissou says. "They're looking at a strategy where they've cut over from one type of engine to another and they probably don't change the rate of production."
Another factor complicating Bombardier's sales effort is the development status of the two CSeries aircraft: the 110- to 125-seater CS100 and the 130- to 145-seater CS300.
So far, potential buyers have only the assurances of Bombardier's sales staff that the aircraft will meet its performance promises. Until the performance can be validated by flight testing, some customers are wary about believing such game-changing promises.
"Until you see the aircraft flying, there's a certain amount of risk priced in," Poutissou says. "That concern goes into the discussions and negotiations. And as you can start to peel away those elements of risk by demonstrating that the aircraft flies, by demonstrating that it meets performance targets, then it becomes more straightforward to conclude transactions."
Getting the CSeries into the air may be critical for the sales campaign, but the precise timing is still open to question. The official schedule still lists "late 2012", and Bombardier says that timeframe is still obtainable. However, for several months, company executives have been quick to add caveats.
ALL-NEW WOES
Bombardier chief executive Pierre Beaudoin noted in a May webcast about first-quarter earnings that there are "no red flags" indicating a delay to first flight. But he added: "I must impress on you these are very complex projects and we have to take it step by step."
In an interview with the Montreal Gazette in December 2011, Beaudoin offered perhaps a more realistic view of the schedule for first flight. Describing the CSeries and aircraft programmes in general, Beaudoin explained that a "three to six month delay" is acceptable for a five-year development programme. A six-month delay could stretch first flight to next year's Paris air show.
Given Bombardier's acknowledged complications, there could be precious few orders added to the CSeries backlog between the Farnborough air show and first flight.
The company is still working on converting its four LOIs into firm orders. In March, Bombardier also signed a key agreement to share the CSeries avionics with the Comac C919. This could help pave the way for Bombardier to close CSeries deals with Chinese airlines.
However, some factors that may disrupt negotiations lie beyond Bombardier's control. Unlike the A320neo and the 737 Max, the all-new CSeries presents a different challenge, as airline executives are familiar with the global aircraft manufacturing industry's track record of not delivering new products on time.
"We often hear - and I won't name any airlines - but we often hear from airlines, 'I've just been able to talk my airline through the A380 and the 787'," Poutissou says. "They're not in any mood to take an all-new aircraft programme to the board and live through an experience like that. And frankly you can put all the [performance guarantee] clauses you want in a contract. The best demonstration is to show progress on the execution side."
Those concerns put further pressure on Bombardier to extract the pricing it wants for a product like the CSeries. "As a result of their concerns over a new aircraft programme they will seek to get - maybe to some extent they've been trained by our competitor - until the aircraft flies, you know, [they say] 'you should be asking for a deeper discount'," he says.
In recent months, Bombardier has shown various structural assemblies of the first CSeries flight test vehicle - the cockpit shell, empennage panels, single-piece composite wings and the Pratt & Whitney PW1521G turbofan in flight test.
But it will be several months before the world sees a completed aircraft emerge from Bombardier's CSeries assembly plant in Mirabel, Quebec. "The [CSeries] won't start looking like an airplane until [late September or October]," says Poutissou.
Around the same time, Bombardier plans to have the final developmental software block ready for integration with the first flight test vehicle.
An initial software block has already been installed on Aircraft 0, also known as the complete integrated aircraft systems test area (CIASTA), in a bespoke Mirabel test facility for the CSeries, says Rob Dewar, Bombardier vice-president for the CSeries.
A second major software update is planned for installation on Aircraft 0 in late July and will be tested for two months until the final software block is complete, Dewar says.
Meanwhile, Bombardier continues to "commission", or activate, major aircraft systems in Aircraft 0 - an advanced, ground-based test rig.
"Aircraft 0 is dimensionally in every way the same dimensions as the [CSeries] aircraft," says Chet Fuller, Bombardier senior vice-president of sales, marketing and asset management. "It has every system on the aircraft with the exception of the fuel and environmental control system."
Bombardier expects to have 90% of all major systems commissioned on Aircraft 0 by the end of June, Dewar says.
"The assembly of the structure we feel is fairly straightforward," Poutissou says. "Where you have the potential for discoveries is really the software, and the way the systems talk to each other. That's why we're really pushing to get this done. That's the critical area to get the aircraft flying by the New Year."
Source: Flight International
